Caroline Jordan finds that brokers can prosper from fears that a terrorism strike is imminent
Panic over terrorism has cooled since back in 2003, when tanks surrounded Heathrow Airport and armed troops rushed in to deal with an "imminent threat". But, a number of experts believe we are deluded if we believe the danger is in the past.
The UK, along with the US, remains a target of Islamic militants. The British military is still in Iraq and there are suicide bombings in that country daily.
To reinforce this danger, the last atrocity took place in March 2004, when a Madrid commuter train was blown up - allegedly by al-Qaeda - killing 191 people.
Simon Sole, managing director of political forecasting agency Exclusive Analysis, has predicted: "We expect to see extremist attacks in both the UK and US in 2005."
The IRA is also viewed as being an increasing threat. According to Katherine Baskerville, western European editor, also at Exclusive Analysis: "We don't buy the argument that the threat of terrorism is receding. The main threats are the IRA (and breakaway group the Real IRA) and al-Qaeda, but we feel it is the IRA which currently poses the greatest threat to the UK mainland."
The IRA is expected to have a full secret army council meeting this year.
It held its last convention three years ago and may well feel it needs to take action.
Baskerville says: "Hardliners will not tolerate an ineffectual political process indefinitely, and the current political stalemate shows little sign of being resolved."
So terrorist risks remain, and are possibly increasing. But are companies responding by buying adequate insurance?
Certainly most brokers agree that take-up has increased, perhaps less as a result of increased risk and more because rates have come down.
Aon is one of the largest brokers handling terrorism risks in the UK.
William Farmer, director for Aon Crisis Management, highlights that most of the cover in this country is provided through the government-backed Pool Re scheme.
But a few syndicates have opted out and are offering stand-alone cover.
These include Ascot, MAP and Catlin. Farmer says : "I would say that capacity is adequate for smaller risks, but if you wanted to place say in excess of £100m, then you'd need to look outside. One company which takes larger risks is Axis in Bermuda."
He says rates are becoming more competitive for a number of reasons, in particular, the impact of the softening property market. "Commercial property prices and rents have also come down and this may mean there is more in the budget to buy cover."
While the majority of UK businesses will obtain their cover from Pool Re, there are reasons why buying cover externally may make sense.
John Eltham, business unit leader - special risks for Miller Insurance, says this could be where a company also has overseas interests (Pool Re is UK only), or is a company with a portfolio of properties - such as a restaurant group or chain of estate agents.
"In this case, and if they were prepared to take a high retention they could buy an aggregate policy which would be better value than Pool Re," he comments.
He says companies should not put their heads in the sand when it comes to buying cover. "There is a high take-up because most people realise it is a fact of life. Many experts believe it is a case of when, rather than if.
"While it is devastating for those directly involved in an attack, for businesses with cover, at least they have the benefit of financial protection."
Miller advises on both property and liability terror cover, but Eltham says it is the former which is most widely sought after, while the latter suffers from relatively low awareness.
He expects this will change shortly. Miller has linked up with Biba to offer a terrorism liability scheme, with a maximum cover of £10m, underwritten by MAP at Lloyd's.
Biba technical services manager Graeme Trudgill says: "You could be a small retailer and have customers caught up in an accident. While property may already by covered, the liability aspect remains important."
Specialists such as Miller and the big brokers, Aon, Marsh and Willis, dominate the terrorism market. But, there are moves to reach a wider audience and Ascot Underwriting says its online terrorism quoting facility, Ataq, is attracting interest from a range of Lloyd's brokers and could also suit some larger provincial brokers.
Ascot business development manager Torquil McLusky comments: "It allows risks to be individually rated and provides real time quotes.
"It offers cover on the same basis as pure terrorism business internationally and can be integrated with a client's worldwide programme, or used to offer UK-located clients cover outside the UK."
The facility offers limits of $25m of capacity per policy on either a full-value or first-loss basis and can accept part orders subject to conditions.
"Until now, UK businesses have had few alternatives to the government's Pool Re scheme despite the fact that few clients are 'average' and full bespoke facultative placements are not always appropriate or cost-effective," he adds.
After the 11 September attack many insurers immediately introduced terrorism exclusions into their policies, some of which have now been lifted.
Specialists dominate the market largely because this is a complex area, although there is scope to learn more. Eltham saysthat Miller will have a sizeable contingent attending the Airmic conference where terrorism will be a key topic.
Biba has produced a guide to what cover is available through Pool Re, detailing exclusions and information on issues such as dirty bombs, cyber terrorism and hoax events.
It is worth noting that nuclear, biological and chemical attacks may be excluded, but they should be covered by Pool Re which may offer narrower cover in other areas. It is very much for brokers to discuss wordings with the underwriter.
Concern over terrorism risk is rising among risk managers, even though there hasn't been a significant attack in recent months says Stephen Ashwell, head of war, terrorism and political risks at Hiscox.
"The great shift in emphasis on terrorism risk after 11 September has kept its momentum, driven as much by a heightened sense of corporate responsibility and pressure from financial institutions as by actual threats.
"There have been fewer incidents over the past few years, but with a higher impact. As for large-scale risks, it is worth noting al-Qaeda is a very patient group."